To get a clearer picture of what 2018 holds for the Greater Toronto Area’s (GTA) housing market, we chatted with Ben Myers, President of Bullpen Research & Consulting Inc.
Myers has more than 15 years of real estate research experience, working on the development side and as an analyst, so he’s one of our go-to experts regarding housing market trends, changes, and forecasts.
Newinhomes.com (NIH): Will the new mortgage stress test cause a slowdown in the first quarter of 2018? If so, when will the market rebound?
Ben Myers (BM): There is no doubt that the new mortgage rules will impact the purchasing power of prospective buyers in the resale market, pushing everyone down a rung on the property ladder. This means a lot of buyers that normally would have just qualified, will have to continue to rent or live with their parents. There will definitely be a big decline in units traded compared to last year, and likely a decline versus the five-year average for the quarter as well.
Because of the housing bubble in the first quarter of 2017, prices this year will be way down compared to last year, and that will spook buyers even further. I don’t expect the market to rebound until the late summer or early fall. That being said, I still expect the condominium resale market to be robust in the $300,000 to $500,000 range.
NIH: With record sales and prices, 2017 was a big year for the condo market. Will we see some moderation this year?
BM: We’ve had two consecutive years of record new condominium sales, and values ballooned in 2017 with asking prices topping $1,000 for even non-prime developments. I think there will be investor fatigue this year, and we won’t see nearly as many sales as the last two years.
Many investors still view Toronto condominiums as great long-term investments, but higher interest rates, rent control, mortgage rule changes, and record future supply on the books, I think there will be more conservative investors moving forward.
NIH: How will the new short-term rental regulations cause fewer condo sales?
BM: There is no doubt that a percentage of investors were purchasing units to use them on Airbnb, but I wouldn’t know how prevalent that was among pre-construction buyers. Rental growth has been very high lately and there is no indication that rental demand is slowing at all, so investors may be satisfied with buying to rent. I think these regulations will be a much smaller factor in investor buying decisions compared to the ones I listed earlier.
NIH: Do you think the new minimum wage will affect the price of homes?
BM: I don’t think it will have any major impact. Households making minimum wage incomes wouldn’t be able to afford much of anything in the GTA housing market. It may have more of an inflationary impact on rental rates, as a rise in income may be the impetus required to get young professionals to move out of their parents home, or choose to find a place by themselves instead of with a roommate.
NIH: Do you think foreign buyer activity will remain low and stable in Toronto?
BM: I was surprised at how high the level was in condominium apartment projects completed over the past two years, but with the new non-resident speculators tax, rent control, and a general cooling in price growth in the resale market, I would expect foreign buyer activity to slow down in 2018.
It won’t stop, as many foreign buyers still view Canada as a very safe place to put their money, and many other foreign buyers are buying for their children when they attend University or College here, or for themselves based on a planned future move here.
NIH: Every year, there’s a topic of controversy. Sometimes it’s a bubble, last year it was foreign buyers. What will be the housing market’s sore spot in 2018?
BM: 2018 will be the year of data misinterpretation. Because prices shot up so quickly in early 2017, any comparisons to that bubbly time will make 2018 look very bad. Headlines won’t provide context and the word crash will be thrown around liberally.
The new housing market set another mind-boggling sales record, a return to an average year will make year-over-year comparisons look like the market has fallen off a cliff, when it hasn’t. The continued focus on average prices when there is such a discrepancy in activity among product types and price ranges will just add another layer of confusion to the marketplace which is already bombarded with data and analysis. Unfortunately, much of that analysis is coming from unqualified sources.
NIH: Sounds like it’s going to be a tough year for some buyers. Do you have any advice for first-time buyers looking to enter the market in 2018?
BM: The advice I typically give is to be patient, meaning don’t overpay for the first property you like. Make sure you stay within your budget, and that means making sacrifices. You can always add that granite countertop, hardwood floors, or stainless steel appliances next year or the year after.
Buy for the long-term, think in 5-10 year increments. If you’re not sure you’re going to be at this job in the next two or three years, perhaps don’t put down roots in that neighbourhood and face a daunting commute when your dream job comes around.
Big thanks goes out to Ben Myers for sharing his thoughts on what the GTA’s housing market will look like in 2018.